Best Ichimoku Strategy for Quick Profits
The best ichimoku strategy is a technical indicator system that can help us assess the markets and provides trading signals of different quality. Forex trading involves a substantial risk of loss but with Ichimoku cloud trading those losses can be contained and kept very small.
The Ichimoku system is a Japanese charting method and a technical analysis method that our team at Trading Strategy Guides has managed to master for a very long period of time.
The Ichimoku indicator was originated from a newspaper writer in Japan named Ichimoku Kinkou Hyo. This trading technique was published in 1969 and it stood the test of time.
The name Ichimoku tells a lot about the trading system or at least it gives a description of the system.
- Ichimoku = “One look, glance”
- Kinkou = “Balance, equilibrium”
- Hyo = “Chart, Graph
The Ichimoku cloud trading attempts to identify probable direction of price and helps the trader to determine the most suitable time to enter and exit the market by giving you the trend direction, reliable support and resistance levels and even the strength of these market signals.
Before we delve deeper into the Ichimoku Cloud strategy, let’s look at what indicators we need to successfully trade this strategy.
The most popular Forex trading platforms have built in the Ichimoku Cloud indicator. The Ichimoku indicator will paint all the components needed to help you have a better visualization of the price action.
In the Ichimoku cloud explained section we’re going to give you an in-depth overview of all the Ichimoku components.
So, before moving forward, let’s define all the Ichimoku Cloud components and how to correctly interpret the trade signals generated by this unique technical indicator.
Ichimoku Cloud Explained
The Ichimoku Hinko Hyo is a momentum indicator that can be used to recognize the direction of the trend. It can also define accurate support and resistance levels. The Ichimoku Cloud indicator consists of four main components that can provide you with reliable trade signals:
- Tenkan-Sen line also called the Conversion Line: Represent the midpoint of the last 9 candlesticks; and it’s calculated with the following Ichimoku formula: [(9-period high + 9-period low)/2].
- Kijun-Sen line also called the Base Line: Represent the midpoint of the last 26 candlesticks; and it’s calculated with the following formula: [(26-period high + 26-period low)/2].
- Chiou Span also called the Lagging Span. As the name suggests it lags behind the price. The Lagging Span is plotted 26 periods back.
- Senkou Span A also called the Leading Span A: It represents one of the two Cloud boundaries and it’s the midpoint between the Conversion Line and the Base Line: [(Conversion Line + Base Line)/2]. This value is plotted 26 periods into the future and it’s the faster Cloud boundary.
- Senkou Span B or the Leading Span B: It represents the second Cloud boundaries and it’s the midpoint of the last 52 price bars: [(52-period high + 52-period low)/2]. This value is plotted 52 periods into the future and it’s the slower Cloud boundary.
Here are some basic interpretations of the Ichimoku charts:
- When the price is above the Cloud, we’re in a bullish trend.
- When the price is below the Cloud, we’re in a bearish trend.
- When the price is in the middle of the cloud the trend is consolidating or ranging.
Furthermore, the Ichimoku charting technique provides bullish and bearish signals of various strengths.
When the Tenkan crosses Kijun from below this is considered a bullish signal and when the Taken crosses the Kijun from above this is considered a bearish signal.
The strength of the Ichimoku trading signals are assessed based on three factors:
- How far away has the price moved relative to the Cloud?
- How far away is the Chiou Span relative to the Cloud?
- How far away is the Cross-over relative to the Cloud?
Ichimoku cloud trading requires a lot of self discipline to only wait for the best trade signals.
We’re going to use the default settings of the Ichimoku Cloud system.
Let’s now take one step forward and see how you can make money applying the Ichimoku trading rules.
Note* Moving forward we’re not going to delete the Lagging Span moving average from our charts because we don’t base our trade decision on it since it’s lagging the price.
The Best Ichimoku Strategy – Buy Rules
The Ichimoku Cloud system is designed to keep traders on the right side of the market. Our trading rules will help you follow the trend for as long as possible until it’s clear that a reversal is occurring. The Ichimoku system suits best for swing trading, as it maximizes the profits while minimizing the risk involved in trading. Here is how to identify the right swing to boost your profit.
The Ichimoku Kinko Hyo best time frame is the one that fits you best as we don’t have a preferred time frame.
This swing trading strategy will teach you how to ride the trend right from the beginning and to capture as much profits as possible.
Ichimoku cloud trading: Step by Step
Step #1 Wait for the Price to Break and close above the Ichimoku Cloud
Ichimoku cloud trading requires for the price to trade above the Cloud because that’s a bullish signal and potentially the beginning of a new up-trend.
The cloud is built to highlight support and resistance levels and it’s supposed to highlight several layers deep because support and resistance are not a single line drawn in the sand, but several layers deep.
So, when we break above or below the Ichimoku Cloud that signals a deep shift in the market sentiment.
A high probability trade setup requires having more layers of confluence before pulling the trigger.
This brings us to our next requirement for a high probability trade setup.
Step #2 Wait for the Crossover: The Conversion Line needs to break above the Base Line.
The price breakout above the Cloud needs to be followed by the crossover of the Conversion Line above the Base Line. Once these two conditions are fulfilled only then we can look to enter a trade.
As you can notice the Ichimoku Cloud indicator is a very complex technical indicator that can be used even as a moving average crossover strategy.
Now, we’re going to lay down a very simple entry technique for the Ichimoku Kinko Hyo trading system.
Step #3 Buy after the crossover at the opening of the next candle
Ideally, any long trades taken using the Ichimoku strategy are taken when the price is trading above the Cloud. Our team at TGS website has adopted a more conservative approach and added an extra factor of confluence before pulling the trigger on a trade.
So, after the crossover we buy at the opening of the next candle.
The next important thing we need to establish is where to place our protective stop loss.
Step #4 Place protective stop loss below the breakout candle
The ideal location to hide our protective stop loss is below the low of the breakout candle. This trading technique accomplishes two major things. Here is an example of master candle setup.
Firstly, it’s minimizing significantly the risk of losing big money and secondly, it helps us trade with the market order flow.
Since this is a swing trading strategy we’re looking to capture as much as possible from this presumably new trend and we’ll be looking to trail our stop loss level below the Cloud or exit the position once a new crossover happens in the opposite direction.
The next logical thing we need to establish for the Ichimoku trading system is where to take profits.
Step #5 Take Profit when the Conversion Line crosses below the Base Line
We only need one simple condition to be satisfied for our take profit strategy.
When the conversion line crosses below the base line we want to take profits and exit our trade.
Alternatively, you can wait until the price breaks below the Cloud but this means risking to lose some parts of your profits. In order to gain more sometimes you have to be willing to lose some.
Note** the above was an example of a BUY trade using the advanced Ichimoku trading strategies. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
Conclusion: Ichimoku cloud explained
The best Ichimoku strategy is slightly different than probably anything you’re used to when it comes down to technical analysis. If you’re having a very difficult time finding true support and resistance please apply the Ichimoku cloud trading techniques highlighted in this course.
We hope that by now you’re convinced that the Ichimoku Cloud system is a good way of identifying the trends and profit from trading any market on any time frame. It can easily capture 80% of the trend if you follow the rules in the Ichimoku Cloud explained section.
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